A loan is an advance made by a lender in favor of an individual who is obliged to repay the amount after a specific period. There are numerous types of loans. Every financial institution has different policies regarding credit matters.
Selecting a credit plan can be quite a dilemma for a person. If someone is considering taking a loan, only a few things need to be kept in mind.
1. Amount and duration of the loan:
The first and foremost step of selecting a credit plan is calculating the amount that is required. Selecting a plan that offers more credit than required is a foolish decision. Also, the duration for which the plan is selected must be sufficient enough to make the repayment. If you take a loan and are unable to repay it within a time you will be answerable to the lender. For example, if you take a gold loan from a bank for one year and you fail to repay the amount, the lender has the right to sell off your gold articles kept as collateral. In the case of unsecured loans such as personal loans, non-repayment of debt will not be considered a criminal offence but the person who made the error of payment will be declared a defaulter.
2. Rate of interest and processing fee:
When you repay a loan, a certain extra percentage of the principal amount is charged as interest. The rate of interest differs from loan to loan and in the case of unsecured loans, it is comparatively much higher. While applying for a loan, the rate of interest is an important factor to be kept in mind. Since it is a natural human tendency to avoid unnecessary spending, choosing a plan with low interest rates is logical. Gold loans have relatively lower interest rates. For example, the HDFC Gold Loan scheme offers an interest rate of 7.0%.
The processing fee is charged during the loan registration process. Personal loans have a processing fee of Rs. 2500 regardless of the principal amount, whereas gold loans have processing fees with respect towards the borrowed amount. For example, a bank charges a processing fee of 1.50% of the principal amount.
3. Availability of credit within desired time:
Situational circumstances can compel someone to take quick measures. If an unfortunate event occurs and a sudden need for a huge expense appears, credit can be a huge assistance. But most loans take days to get certified. The best option for these situations is a gold loan because they can be availed within hours. This is one of the major benefits of gold loans. People don't have to wait very long to receive a gold loan.
The Gold Loan Interest Rate and eligibility criteria are also different from other loans. Gold loan eligibility criteria are comparatively simpler. Any person of 18-years to an age of up to 75-years can apply for a gold loan with the required documents (Identity and Address proof) and their gold articles. Other loans are different. To apply for a other loans you need numerous other documents such as proof of income, and you must have been an employee for a specific time.
Your credit score is also considered while deciding whether your loan will get cleared or not. After considering all these factors it is clear that applying for a gold loan is a much more logical option. Other loans can be quite beneficial as well but not for every citizen. Gold loans provide an equal opportunity to all people regardless of their financial status.
Conclusion:
While deciding which credit facility to choose from, we must decide which course of action will yield maximum profit. Not everyone would feel that gold loans are better than other loans but for most people, gold loans are extremely beneficial. This is the reason gold loans have more demand.
Read More:- Why gold is the first choice of borrowers